Legislature(2003 - 2004)
04/01/2004 03:32 PM House FIN
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* first hearing in first committee of referral
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HOUSE BILL NO. 453
An Act exempting from regulation under the Alaska
Public Utilities Regulatory Act wholesale agreements
for the sale of power by joint action agencies and
contracts related to those agreements, and joint action
agencies composed of public utilities of political
subdivisions and utilities organized under the Electric
and Telephone Cooperative Act.
Representative Cheryll Heinze pointed out that with
transmission lines dating back to the 1950's and generation
assets that are 20-30 years old, Alaska's energy
infrastructure is in need of an upgrade. According to the
Railbelt Energy Study, upgrade costs would be around $5
billion dollars. The House and Senate recognized that when
they passed HCR 21, establishing the Joint Energy Policy
Task Force (JEPTF). HCR 21 mandated a review and analysis
of the State's long-term energy needs, asking the task Force
to develop a long-term energy plan to efficiently enhance
Alaska's economic future.
Representative Heinze pointed out that one of the major
recommendations made by JEPTF was that the State "promotes
unified operations of Railbelt generation and transmission
systems." A unified system operator would, by coordinating
the resources of the various Railbelt utilities, be in a
position to undertake the financial obligation of upgrading
the Railbelt. The demands of the infrastructure upgrades
are beyond the financial capability of any single utility.
The proposed legislation is a tool that will give a Joint
Action Agency (JAA) the financial stability to fulfill the
role of a unified system operator.
Representative Heinze commented that HB 453 would make
slight changes to existing statute that permit certain
entities to create what is called a Joint Action Agency
(JAA) under AS 42.45.300, a business organization of similar
structure to a "5" or "C" corporation, partnership,
cooperative or limited liability corporation (LLC).
Specifically, language would be added to AS 42.05.431(c) and
AS 42.05.711(o), to exempt contracts by such an agency from
regulation. She thought it would be fitting and proper in
that the entity that is exempted by the change to statute
could only be made up of cooperatives under AS 10.25 or
entities owned by a political subdivision of the State,
whose governing bodies are publicly elected.
Representative Heinze further concluded contracts
consummated by a JAA with other public utilities for the
sale of power, wheeling, storage, regeneration, or wholesale
repurchase under a wholesale agreement, would be an
agreement between two or more willing and capable parties.
Any disputes would be handled in Superior Court according to
contractual law. She strongly urged the Committee's support
of HB 453.
Co-Chair Williams noted that the bill would not be moved
from Committee at this meeting and that the intent of the
meeting was to only take public testimony.
JOE GRIFFITH, CHIEF EXECUTIVE OFFICIER (CEO), CHUGACH
ELECTRIC, ANCHORAGE, testified that Chugach Electric
supports HB 453, a tool that the Legislature could provide
to JAA's to reduce regulatory uncertainty and financing
costs for future electrical infrastructure.
Mr. Griffith indicated that the Railbelt energy study
identified that over $5 billion dollars would be spent in
the next 25 years on Railbelt electrical supply, including
fuel, operations and maintenance expenses and the capital
necessary to replace aging equipment to meet new electrical
demands. He added that $5 billion dollars could be a major
contributor to Alaska's economic future.
Mr. Griffith pointed out that the Legislature has indicated
that the utilities should no longer count on the State
providing grants for future infrastructure needs. HB 453
would help utilities fill that gap without burdening the
State with government subsidy and continued bureaucracy.
The JAA would be comprised of cooperatives and municipal
utilities. Representatives of the utilities would sit on
the agencies board of directors. Mr. Griffith continued,
member utilities would approve all power sale agreements
between JAA and member utilities. The addition of the
Regulatory Commission of Alaska (RCA) oversight would not be
necessary as the utilities have a voice in project
operations, maintenance and cost recovery.
Mr. Griffith pointed out that governance of cooperatives and
municipal utilities serve at the pleasure of the membership.
The member/owners have the ability to change the governance
if they don't agree with the reliability, price and service
they receive from their utilities. Joint action agencies
would be comprised of members who have common interest and
shared goals. All would have a voice at the table and would
be free to make their own choices.
Mr. Griffith stated that Chugach Electric, Golden Valley
Electric, and Anchorage Municipal Light & Power would be the
initial members of the Joint Action Agency. It is Chugach's
desire to "see the other utilities join as they see benefit"
in the process. He acknowledged that all utilities do not
see eye to eye. It is hoped that the JAA process will
provide a better framework for future project developments
and that supporting HB 453 will help maintain low-cost
reliable power by giving utilities the tools they need to
attract low-cost financing to build Alaska's future
electrical infrastructure.
JAMES POSEY, GENERAL MANAGER, ANCHORAGE MUNICIPAL LIGHT AND
POWER, ANCHORAGE, commented that Anchorage Municipal had
started a large mine in the Fairbanks area with the intent
to continue economic development to help pay future debts.
He noted that the work of the utility industry is to "keep
the lights on". He pointed out that Anchorage shares the
load with other Valley utilities. The way that is
accomplished is through interties and investments made over
the years. The equipment and lines are aging and it is time
to address these issues. Alone, a utility cannot do the
projects that need to be done.
Mr. Posey pointed out that some plants have been shut down.
All the additional loads and investments that the utility
must make, take a toll. JAA would be a tool to help the
utilities get low cost financing.
TUCKERMAN BABCOCK, MANAGER OF GOVERNMENT & STRATEGIC
AFFAIRS, MATANUSKA ELECTRIC ASSOCIATION, ANCHORAGE,
introduced Mike Polley, Manager of Corporate Communications,
Matanuska Electric Association. Mr. Babcock pointed out
that Matanuska Electric is the largest utility in the
Railbelt and that they oppose HB 453. He referenced the
handout from Patton Boggs Attorneys at Law, which analyze
the legislation. (Copy on File). He stressed that the bill
would do more than currently mentioned. He emphasized that
the relationships of the utilities in the Railbelt are
complex and that the bill would have several detrimental
effects on existing costs of power in that area.
Mr. Babcock recommended a review of the findings and
recommendations of the Legislature's Energy Policy Task
Force, particularly the Government Action Section on Page
12. That report was delivered earlier in the year. In
Section 12, it was recommended to promote a unified system,
operator or operation system in the Railbelt. Any efforts
toward that goal, Matanuska Electric would support. There
have been three methods proposed:
· Power pooling,
· Joint action agency, and
· Generation of a transmission cooperative.
The underlining principle in those three cases would be the
recommendations from the Energy Policy Task Force, creating
a unified system of operation.
Mr. Babcock commended Representative Heinze for her forward
movement in implementing a direction that would establish a
new system for operations; however, the proposed concept
would not accomplish that end. He urged the Committee to
revisit the issue and allow RCA to make a recommendation
regarding operations.
Representative Croft inquired how the bill could be
detrimental. Mr. Babcock responded that Matanuska Electric
is a customer of Chugach Electric. Matanuska Electric would
not be negotiating for at least the next ten years with any
Joint Action Agency for the power produced by JAA. Instead,
Matanuska Electric would be required to purchase all their
power directly from Chugach Electric. Under the bill, there
would be no regulation regarding the price to be paid for
wholesale power. He stressed that there can be no consumer
protection oversight without that regulation.
Representative Croft clarified if Matanuska Electric was
concerned that if the JAA were formed, it would sell power
internally at an artificially high rate. Mr. Babcock
acknowledged that was correct.
Representative Croft commented that the JAA would have to,
in a fact, "damage" their own customers, before they end up
damaging the electric companies without membership in the
JAA. Mr. Babcock stated that under contract, they would be
paying exactly the same that Chugach would be charging their
own customers.
Representative Croft pointed out that RCA would not have
jurisdiction over the rate that JAA charges, but asked if
they would they have jurisdiction in a substantive rate
setting case to look at the underlining merits of the rate
JAA charges. Mr. Babcock stated that the bill would
prohibit the Commission from doing that.
Representative Stoltze requested that RCA testify before the
Committee as well as lawyers and experts on the subject.
Co-Chair Williams noted that Mark Johnson from Regulatory
Commission of Alaska (RCA) was online to testify. He added
that the legislation would be before the Committee at a
later date.
CHRISTINE PIHL, (TESTIFIED VIA TELECONFERENCE), VICE
PRESIDENT, SEATTLE-NORTHWEST SECURITIES, SEATTLE,
WASHINGTON, commented that HB 453 would result in a lower
cost for capital. She requested time to explain how that
could happen. Credit ratings matter to utilities, directly
determine costs of capital and impact the bond line, which
impacts ratepayers. There are many factors that contribute
to a strong rating. The regulatory oversight is the most
significant qualifier. Most large power companies across
the nation are not setting regulations, which does not mean
that they are free from accountability because they are
accountable to their customers and members. She added that
around the Nation, there is a lot of public trust.
Ms. Pihl advised that utilities are responsible to
shareholders and customers, which is why it is important
that they are subject to regulation. From a rating
perspective, she stated that self-regulation is a stronger
financial performance. State regulators are not bad people,
but they are not into the database results of a particular
utility. It would be impossible for them to have that kind
of knowledge. The utilities and the regulators have
aligning interests for reliable low-cost power. However,
their processes are incompatible for creating financial
flexibility. Given how volatile the power market has
become, it is increasingly difficult for utilities to
respond to what is happening in the power market.
Regulations make that more difficult.
Ms. Pihl advised that the best and strongest utilities from
a credit rating perspective are free from regulations.
Chugach Electric is an example of the decline in a good
credit rating. In 2003, Chugach Electric got a two notch
down grade, each sighted the regulatory environment as being
the reason for the decline. She stressed that Chugach has
been disadvantaged because of the regulatory environment in
Alaska, resulting in increased costs to the taxpayers. An
additional impact is that Chugach wants to "jump higher and
run faster" than other utilities that are not regulated but
have similar rating results because of the negative
environment created through the regulations. In order to
create a financially strong environment for the JAA's, the
best thing to do would be to adopt HB 453, as it creates a
positive environment for regulations. She commented that
the JAA would be directly responsible to their constituents.
Representative Stoltze inquired who Ms. Pihl was
representing. Ms. Pihl responded that she was a public
power regulation maker and worked for public power utilities
around the Nation and with Chugach Electric.
Representative Stoltze observed that in Alaska, there are
unusual marketing structures for the electric utilities. He
asked if that was true. Ms. Pihl replied how Alaska
compared to the grid for the rest of the Nation.
Representative Stoltze commented that he was most interested
in the marketing structure of the utility environment. Ms.
Pihl pointed out that there are many rural utilities
throughout the Nation, more than the large ones serving
metropolitan areas. Chugach is rated, as compared to those
other utilities. What happens in the regulatory environment
impacts their credit ratings. There are many similarities
in the national power market to what is occurring in Alaska.
CLAIR HEISE, (TESTIFIED VIA TELECONFERENCE), ALASKA POWER
ASSOCIATION, ANCHORAGE, read the testimony for Mr. Eric
Yould, Alaska Power Association, who was unable to attend
the House Finance Committee meeting.
Prepared Testimony read from Mr. Eric Yould:
"A1aska Power Association (APA) strongly supports HB
453, which would create a joint action agency for
Railbelt electric utilities. The purpose for the new
entity is to share the ownership and management of the
Bradley Lake Hydroelectric project and Alaska Intertie
assets, which could be acquired from the Alaska
Industrial Development and Export Authority (AIDEA) and
its' affiliate, Alaska Energy Authority (AEA).
Although owned by the State, the Bradley Lake project
and the Alaska Intertie are currently managed and funded
by the Railbelt utilities through the Interlie Operating
Committee and the Bradley Lake Project Management
Committee, respectively. It is important to note that
all the Railbelt utilities are either consumer-owned
cooperatives or municipal systems that are directly
responsible to their customers.
AIDEA has expressed an interest in divesting Bradley
Lake and the Alaska Intertie to interested utilities in
the Railbelt. The Alaska Power Authority (APA) Board of
Directors believes that it is in the best interest of
the Railbelt utilities to have common ownership of these
projects, to provide a funding mechanism for the
projects' maintenance, capital improvements and repair.
Please be aware that there is a difference of opinion on
HB 453 among APA's members in the Railbelt. Chugach
Electric Association, Anchorage Municipal Light & Power
and Golden Valley Electric Association support the bill.
Homer Electric Association and City of Seward Light &
Power Division oppose it.
Attached is the APA resolution supporting authorization
of a joint action agency (JAA) for State electric
infrastructure assets."
Resolution 2004:
5.1) A Resolution Supporting the Authorization of a
JAA for State Electric infrastructure Assets.
The Alaska industrial Development and Export
Authority/Alaska Energy Authority is the owner of the
Bradley Lake Hydroelectric Project and Alaskan
Intertie. These assets are currently managed and
funded by the Railbelt utilities through the Intertie
Operating Committee and the Bradley Lake Project
Management Committee, respectively. The Railbelt
utilities are made up of a combination of cooperatives
and municipalities.
AIDEA has expressed an interest in divesting itself of
these electrical projects to interested utilities in
the Railbelt. It would be in the best interest of the
Railbelt utilities to have common ownership of these
electrical projects that will provide a funding
mechanism for necessary maintenance, capital
improvements and repair of these projects. The Joint
Action Agency is a formal organization recognized by
the State of Alaska that is particularly useful for
organizations that include municipalities and
cooperatives. Alaska Power Association strongly
supports the authorization of a Joint Action Agency as
a new entity to share ownership and manage assets that
may be transferred from AIDEA/AEA.
Representative Foster requested a list of the member's of
the association. Ms. Heise pointed out that there are 26
active members of the agency:
Alaska Electric Energy Cooperative; Alaska Electric
Generation & Transmission Cooperative; Alaska Village
Electric Cooperative; Anchorage Municipal Light and
Power; Barrow Utilities & Electric Cooperative; Chugach
Electric Association; Copper Valley Electric
Association; Cordova Electric Cooperative; Four Dam
Pool Power Agency; City of Galena, Golden Valley
Electric Association; Homer Electric Association; INN
Electric Cooperative; Kodiak Electric Association;
Kotzebue Electric Association; Levelock Electric
Cooperative; Middle Kuskokwim Electric Cooperative;
Naknek Electric Association; Nome Joint Utility
Association; North Slope Borough Power & Light;
Nushagak Cooperative, City of Seward Light and Power
Division; Thomas Bay Power Authority; Tlinget-Haida
Regional Electric Authority (Inside Passage
Cooperative); Unalakleet Valley Electric Cooperative &
Yakutat Power
Representative Foster asked which associations oppose the
legislation. Ms. Heise stated that only Homer Electric and
the City of Seward oppose the bill.
Representative Chenault asked why Homer Electric opposed the
bill. Ms. Heise responded that she was not comfortable
representing their position. She encouraged Representative
Chenault to consult with that association.
MARK JOHNSON, CHAIRMAN, (TESTIFIED VIA TELECONFERENCE),
REGULATORY COMMISSION OF ALASKA (RCA), ANCHORAGE, stated
that the Regulatory Commission of Alaska is opposed to HB
453. The legislation holds the potential to exempt from
regulatory oversight most new electrical generation in the
Railbelt in future years. The only effect that HB 453 would
have would be to provide an exemption from all forms of
regulatory oversight. The legislation does not enhance the
functioning of the JAA's. From the perspective of the RCA,
HB 453 would provide no tangible or measurable benefits to
the consuming public while at the same time, creates
significant potential for the abuse of monopoly power in
Alaska's most capital-intensive industry.
Mr. Johnson continued, the principal joint action agency
under Alaska law is the entity created to manage the Four
Dam Pool assets, which were built with direct State
appropriations in the 1980's. The agency functioned
reasonably well, which was the case because of the unique
circumstances causing its formation. Underpinning the
formation of the Four Dam Pool joint action agency was the
fact that all of the assets, which were and are subject to
agency management, were already constructed. Those
agreements were already in place for the purchase and sale
of wholesale power from the projects. In summary, the State,
with heavy legislative involvement, determined that the
investments were appropriate and that management under the
joint action agency concept was the preferred course for the
administration of those facilities. AS 42.05.43 1 (c)
grants an exemption to the Four Dam Pool Agency from RCA
jurisdiction but that exemption is of limited duration.
Mr. Johnson pointed out in stark contrast, the exemption
proposed in HB 453 would extend to an unknown number of new
joint action agencies, for an undefined number of projects,
which have not yet been planned, constructed, financed or
operated. Further, the exemption would be of unlimited
duration. If exempt from RCA jurisdiction, new electrical
generation facilities in the Railbelt constructed under the
auspices of one or more new joint action agencies would not
be subject to any independent review as to:
· Their necessity or prudence;
· The reasonableness of their operating expenses; or
· The rates to be charged for power produced from the
facilities.
Mr. Johnson emphasized that the RCA believes that a grant of
such sweeping authority would be unprecedented in Alaska's
history. A variety of problems could arise under the
legislation, which would be very difficult to correct once
significant resources had been invested in a particular
project. One area lies in the scope of projects, which
might be undertaken. For example, the potential exists that
a self-governed, unregulated joint action agency could
determine that the provision of generation or transmission
facilities might include the construction of extensive
private roadways, pipelines or even railroads. No
independent mechanism would exist to control or question
such decisions or investments. Similarly, no direct
mechanism would exist to control or question the sizing of
proposed plant investments or their fuel sources. In the
arena of operations and maintenance, no agency could review
the reasonableness or prudence of expenses of joint action
agency facilities. Any and all expenses would be included
in the wholesale rates to be charged to power distributors
on a "take it or leave it" basis.
Mr. Johnson summarized that the Legislature should
understand that while joint action agencies are identified
in the final report of the Energy Policy Task Force as a
method for unified system operation, the Task Force report
does not mention or endorse the exemption of such agencies
from RCA regulation. RCA agrees with the Energy Policy Task
Force recommendations that joint action agencies could play
a useful role in the planning, construction and operation of
new generation and transmission facilities. In the view of
the RCA, constructive use of the joint action agency concept
must include statutory provisions as to the scope,
governance and operation of such agencies. The complete
exemption of such agencies from RCA jurisdiction does not
solve any identifiable problem except to satisfy a general
desire for the lessening of regulatory burdens. The
Legislature should understand that regional interests of one
utility could induce generation and transmission decisions,
which, while favorable to one utility, are not in the
overall public interest. The State needs to retain
oversight of major infrastructure decisions, and continued
ratemaking jurisdiction. Decisions on major infrastructure
projects are best reviewed either by the Legislature or
through an agency charged with cost analysis that embraces
the Railbelt as a whole, which will ensure major
infrastructure decisions are made in the public interest.
Multiple and serious costs to the consuming public would
arise from the blanket exemption proposed in HB 453. Mr.
Johnson urged that HB 453 not be enacted by the Legislature.
Representative Stoltze asked the consequences if the
legislation did create a consolidation with limited
oversight. Mr. Johnson responded that RCA had worked with
staff and the sponsor of the proposed legislation. He
reiterated that the bill would not accomplish anything other
than taking away jurisdiction of the Regulatory Commission.
The JAA would not be subject to any regulatory oversight by
the RCA. He added that in California, it has been
determined that energy prices in that State are volatile and
have to many constraints on production and transmission of
electricity. Problems have resulted from having a limited
number of providers and a limited number of ways to provide
electricity around the State. The dangers are significant
when addressing a limited number of electric suppliers and a
limited number of ways in which the energy can be lifted
out.
Representative Heinze inquired if most public power
cooperatives were regulated in other states. Mr. Johnson
replied that some are self-regulated.
Representative Hawker asked what is a joint action agency
(JAA). Mr. Johnson responded that a JAA is a legal entity
created by statute, possessing certain powers to accomplish
certain things. The three biggest statewide producers want
to create a single entity to accomplish specific functions.
The concern of RCA is that the legislation would not provide
the necessary oversight other than through the structure
created for the owner-utilities. A JAA would not be subject
to oversight in the State.
Representative Hawker asked if the JAA's were a place where
public utilities come together forming an entity to share
the activities that they undertake as power companies. Mr.
Johnson stated that the intent was to jointly own and
construct these facilities in order to pursue facilities of
a larger scale.
Representative Hawker summarized, the individual public
utilities coming together to form this JAA, would come
together to become an agency. That agency would then be
exempt from the oversight of RCA regulations. Mr. Johnson
acknowledged that was correct and that a new agency would be
created. RCA believes that a joint action agency
appropriately structured could be a useful tool by enabling
electric utilities to respond to the needs for regeneration.
Representative Hawker attempted to clarify that what Mr.
Johnson was recommending was that the RCA should be
regulating activities amongst the members of the JAA. Mr.
Johnson responded that traditionally, RCA would be used
primarily to determine the size and scope of the review.
RCA wants to retain jurisdiction over the individual
utilities retail aspects.
Representative Hawker summarized that RCA does want to
retain jurisdiction over individual utility sales of retail
power, and that the RCA wants the authority to participate
in a regulatory basis for whatever those joint activities
are. He asked if RCA would question that relationship if
there were a dispute.
TAPE HFC 04 - 74, Side B
Representative Hawker questioned how they would get to the
details of a dispute. Mr. Johnson warned that with the
proposed legislation, RCA would have that authority removed.
Representative Hawker remembered the opposite position taken
on that and asked to revisit it. Mr. Johnson clarified that
he had based his comments on what exists in statute. The
Statute clearly highlights that RCA would not have that
jurisdiction. Representative Hawker noted that he would
consult with Legislative Legal to make that conclusion.
TOM LOVAS, CHIEF EXECUTIVE OFFICER, FOUR DAM POOL POWER
AGENCY, ANCHORAGE, commented that the potential exists for
HB 453 to impact the Four Dam Pool Agency and that the Board
has not taken a position on the bill. To the extent that a
JAA is organized, is potentially a situation where the Four
Dam Pool would become and maintain an exemption from RCA
regulations. That is an exemption currently, enjoyed by the
agency.
Mr. Lovas continued, to the extend that the Four Dam Pool is
successful at removing debt, it is possible to be classified
under exempt RCA jurisdiction. To that extent, the bill as
it applies would reserve the exemption for the Four Dam
Pool. He added from the standpoint of the operating
agreements, and in coordination among the members of the
JAA, the common interest and goals in owning and operating
power plants for the benefit of the consumer, is up to the
agency and its organization. What transpires ultimately to
retail members is subject to the jurisdiction in the system
already. He added, Four Dam Pool has been successful at
holding rates at a constant level since 1998 with no change.
There is a common interest among the members of the JAA to
assure that the operations are done in the most cost
effective manner and in a way that is consistent with the
common interest of the membership.
Representative Croft noted that Four Dam Pool is an example
of an unregulated JAA. He pointed out that there has been
concern that an unregulated JAA would sell power at an
inflated expense. He asked if that had been the experience
for the Four Dam Pool. Mr. Lovas responded that the Four
Dam Pool shares equally in ownership and operations and that
it is a level playing field among all the memberships.
Representative Stoltze inquired about the entrance into the
agreement, wanting to know how it would affect utilities in
his region. Mr. Lovas pointed out that internal checks and
balances would address concerns resulting from the formation
of a JAA.
Co-Chair Williams stated that HB 453 would be HELD in
Committee for further consideration.
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